The regulatory noose is tightening around Vale’s neck


The world’s top iron producer Vale SA (NYSE: VALE) has had a tumultuous year so far. Following a major dam collapse in late January which killed hundreds of people, displaced thousands, and caused billions of dollars worth of environmental damage, what’s followed from the incident has been a series of scandals and regulatory probes into the company’s deliberate choice to ignore safety concerns across their various facilities.

Now, Brazilian securities regulators have promised to ramp up their efforts against the company, stating on Monday that it’s opened up new investigations on whether executives at the company should be prosecuted.

Brazil’s securities regulator CVM stated that it’s opening up additional investigations in regard to whether executives of Vale breached their fiduciary duties and might be liable to prosecution for violating Brazilian securities law.

The body, which has the power to impose fines as well as prevent executives from working on Brazilian-listed companies, said the investigation won’t be taking into consideration environmental issues, instead stating that other agencies are looking into the matter.

Vale provided an emailed statement to Reuters, which first covered the news development, responding to the statement from CVM. “We remain available and will maintain a transparent and collaborative stance.”

Investors have known for a while that lawsuits were likely coming from the Brazilian government, so the impact of the announcement didn’t scare shareholders as much as it otherwise would. Some of Vale’s top executives have already resigned weeks after the initial dam collapse back in January, although many of these figures still remain on the hook for potential criminal charges.

While a terrible event for Brazilians, environmentalists, and shareholders alike, commodity speculators ended up appreciating the incident for the volatility spike it gave to iron prices. With Vale ending up shutting down dozens of facilities for safety inspections, the resulting supply shortage sent the industrial metal skyrocketing to record prices in the $120 per ton price range.

However, prices have seen begun to taper off, losing their gains and proving correct the warnings of analysts that these sky-high prices weren’t sustainable. Savvy traders made significant profits riding both ends of the price curve, both on its way up as well as on its way down.

Since then, analysts have even begun to become bullish on Vale’s stock, arguing that the company has become too cheap. Shares of the iron-miner were down 2.3 percent in response to the news today. While shares initially plummeted back in January, they’ve staged somewhat of a recovery since then, rising and falling periodically in response to news developments but gain back at least some of its lost market value.

Vale Company Profile

Vale is the world’s largest iron ore miner and one of the largest diversified miners, along with BHP and Rio Tinto. Earnings are dominated by the bulk materials division, primarily iron ore and iron ore pellets, with minor contributions from iron ore proxies, including manganese and coal. The base metals division is much smaller, primarily consisting of nickel mines and smelters with a small contribution from copper. – Warrior Trading News